May 2014

25

This complaint relates to the manipulation of low float stocks for profit by the stock blog site Seeking Alpha. Seeking Alpha generates income through sales of subscriptions to their premium service SA Pro. Seeking Alpha pays certain blog writers for submissions earmarked for SA Pro and then frontruns these articles to SA Pro subscribers. These articles are generally one-sided and promotional. SA Pro subscribers are then able to purchase stock in the companies promoted in the articles before the articles are published on the Seeking Alpha website for the general public. Seeking Alpha is highly influential in the stock trading community due to the fact that their articles are carried on the Yahoo Finance news feed, and Yahoo Finance is the predominant news portal for retail stock traders. A Seeking Alpha article can have a dramatic effect on the share price of a low float stock in the short term. Therefore, Seeking Alpha is selling individuals the opportunity to profit from short-term trades in stocks whose price they plan to manipulate through release of a promotional blog piece.

I will cite two individual examples of this practice, although there have been many.

On March 20, 2014 an article was published to Seeking Alpha concerning the stem cell company Aastrom (ASTM). The title of the article was "4 Reasons Aastrom Looks Good Right Now." The tone of the article was highly positive and promotional. Aastrom has a tiny float of 4 million shares and trades at very low volumes (typically 50K-100K). On March 19, the day the article was released to SA Pro subscribers, volume spiked to almost 600K and the stock spiked to an intraday high of 4.12 from an open of 3.78, despite a lack of any material news regarding the company. The intraday high on March 20 after the article was published to the general readership was 5.33 and the intraday high on March 21 was 7. SA Pro subscribers had ample opportunity to profit substantially from this stock manipulation, as long as they sold before the share price steadily degraded back to the mid 3's over the next two weeks.

On April 30, 2014 an article was published to Seeking Alpha concerning the biotech company InVivo (NVIV). The title of the article was "InVivo's Day Has Arrived." The author was the same author that penned the Aastrom article described above, and the tone was similarly promotional. In the month up until April 25 InVivo stock had traded in a narrow range with a low volume of 50-150K. On April 25 the stock closed at 1.5. On April 28 volume spiked to 700K shares and the stock closed at 1.84, with an intraday high of 2.05. I believe this was the day the Seeking Alpha article was frontrun to SA Pro subscribers, two days ahead of general publication. On April 30 the article was published and over the next two days the stock rose to an intraday high of 2.25, providing ample profit to those who had loaded up pre-publication. However, by the close on May 5 the price was back down to 1.75.

I am not well-versed in securities law but it is hard for me to believe that the SEC can permit this form of flagrant stock manipulation for profit. I believe that every investor should trade on an even field and succeed or fail based on his own ability to acquire a deep understanding of the fundamental value of individual companies. The activities of Seeking Alpha and their associates make a mockery of the US securities system. [more]